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RBS Romania Monthly Report No. 36

NBR kept the key rate at 5.25% for the fourth consecutive monthThe central bank continued its prudent stance in September, keeping the monetary policy rate at 5.25%. At the same time, the NBR kept the current levels of the minimum reserve requirement ratios steady and decided to ensure an adequate liquidity management in the banking system. On 28th September the IMF completed the sixth review of Romania’s current precautionary Stand-By Arrangement. On 11th September Romania signed a loan agreement of EUR 1bn with IBRD under very favourable conditions. Inflation was higher than expected again in August; we have revised our year-end inflation forecast from 4.0% to 4.6% - outside the central bank’s target range. We consider that the central bank will not react to the supply shocks and will keep the key rate unchanged at 5.25% in 2012. Romania’s economy increased by 0.5%qoq and 1.2%yoy (unadjusted) in the second quarter, bringing real GDP growth for the first half of 2012 to 0.8%yoy. For the whole year we estimate a growth rate of 0.8%. The central bank’s decision to remove the cap on amounts offered to banks through repo operations had a positive impact on money market liquidity in September. The EUR/RON increased gradually from a low of 4.47 towards 4.54. September was successful for the Ministry of Finance in the treasury securities market: it raised higher sums than planned and for some securities at lower yields compared to previous auctions. Moreover, it borrowed EUR 750m by reopening a Eurobond, maturing in 2018. Investors' interest was very high and the yield accepted was 5.1% - lower compared to previous similar auctions.